Odfjell Drilling Ltd (ODFJF) (Q3 2026) Earnings Call Highlights: $700 Million Backlog, Dividend ...

Negative Points

• Deep Sea Atlantic was offline for much of Q3 due to equipment handling incidents, and third-party labor conflicts impacted other rigs, resulting in lower fleet financial utilization of 89%.

• Operating revenue and EBITDA were negatively impacted by off-hire time, with Q3 EBITDA of $130 million reflecting the challenges.

• The company incurred $18 million in CapEx related to the Deep Sea Atlantic incident, and total net cash impact of approximately $35 million was reflected in Q3.

• The reactivation and mobilization of the newly managed Beacon Pacific rig will take until 2027, requiring time and investment before it starts its contract.

• There may be timing effects on insurance proceeds and remaining CapEx payments, which could affect cash flow in future quarters.

Q & A Highlights

Q: With the harsh environment market tightening, how will Odfjell balance securing long-term backlog against capturing upside from rising day rates? A: CEO Kjetil Gjersdal said the company prioritizes backlog and long-term relationships, aiming to lock in the majority of the fleet on longer-term contracts at solid day rates, while deliberately keeping one or two assets with some availability to capture attractive opportunities if rates rise further.

Q: What is the strategic rationale for taking on management of the Beacon Pacific, and how does it fit the North Sea fleet? A: CEO Kjetil Gjersdal said the high-spec unit is the sister rig of the Deep Sea Yantai, which Odfjell has operated for about seven years, and brings scale, broader client reach and lower unit D&A. He noted the UK North Sea has a record-low number of active rigs and a mature fleet, making the move strategically attractive long term. Odfjell only manages rigs it could see itself owning.

Q: Will the Beacon Pacific need material upgrades to become eligible for work in Norway, similar to the Deep Sea Yantai specification? A: CEO Kjetil Gjersdal said no material upgrades are required, since the rig was originally built to Norwegian rules and regulations. Some upgrades will be needed as regulations have evolved, but they are far from material, and the rig could quite easily be taken into Norway.

Q: What is the history and ownership of the Beacon Pacific, and how much reactivation work is required before it starts its UK contract? A: CEO Kjetil Gjersdal said the owner is CMC, the same Chinese company that owns the Deep Sea Yantai. The rig has never drilled a well and has been idle at the yard since completion, so it requires a reactivation process and certain upgrades. Work has already begun and will run into 2027 before the rig leaves the yard and mobilizes to the UK.

Q: How does Odfjell view the priced options in the Vr Energi contract for the Deep Sea Bergen, and what does that say about long-term contracting? A: CEO Kjetil Gjersdal said both parties intend a long-term relationship, with the options designed to incentivize continuation. He described the options as priced at a very healthy level, in the 500s once exchange rates and escalations are considered, and said a rig booked until 2031 with priced options to 2035 should generate exceptional cash flow over the contract life.

Q: What were the key financial results for Q3 2026, and how did the Deep Sea Atlantic incident affect them? A: CFO Oyvind Nodland reported operating revenue of $265 million versus $234 million in Q3 2025, with $235 million from the owned fleet and $31 million from the external fleet. Group EBITDA was $130 million, with a 54% margin on the owned fleet and 19% on the external fleet, and net profit from continuing operations was $51 million. Revenue was hurt by off-hire time on the Deep Sea Atlantic and third-party labor conflicts, while $11 million of other income related to insurance for increased OpEx did not inflate EBITDA.

Q: What is the status of the balance sheet, net debt and liquidity? A: CFO Oyvind Nodland said net debt is now $857 million, a leverage ratio of 1.6 times net debt to EBITDA, after the Q4 increase tied to the Deep Sea Bergen acquisition. The equity ratio rose to 56% of total assets of about $2.6 billion, and available liquidity is $261 million, including an undrawn RCF of $216 million. Post-period, $39 million was received from the positive tax case ruling.

Q: What drove the increase in the quarterly dividend, and what are the payment details? A: CFO Oyvind Nodland said the dividend was raised to $0.27 per share from $0.20 in Q2, reflecting the increased backlog secured and the company's dividend criteria. The total payment is $64.7 million for the quarter, an annualized yield of 9% based on the prior day's close. Shares trade ex-dividend on November 12, with payment on or around November 25.

Q: What was the cash flow and CapEx breakdown for Q3, and will remaining Deep Sea Atlantic CapEx be covered by insurance? A: CFO Oyvind Nodland said Q3 cash from operations was $123 million, with $29 million of net interest paid and $38 million of investing cash outflow, including $18 million for the Deep Sea Atlantic incident and $6 million of client-funded upgrades. Financing outflow was $11 million, including $37 million of scheduled installments and $24 million of net RCF drawings, and $60 million of dividends were paid. Any remaining Deep Sea Atlantic cash outflow is expected to be covered by insurance payments in Q4, though timing effects may persist.

Q: What is the total cash effect of the Deep Sea Atlantic incident, and is it now fully accounted for? A: CFO Oyvind Nodland said the total cash effect, announced in Q2, is approximately $35 million compared with what would have been earned absent the incident, mostly from lost earnings. The net cash impact is now fully reflected in Q3, and any remaining cash outflow is expected to be covered by future insurance payments, subject to timing effects.

Q: What is the current contract coverage across the fleet, and what new awards were secured? A: CEO Kjetil Gjersdal said over $700 million of new firm backlog was secured in recent months, including an early option exercise by Aker BP on the Deep Sea Nordkapp until end-2028, a three-year Vr Energi contract for the Deep Sea Bergen with four one-year priced options potentially to early 2035, and two additional Equinor wells for the Deep Sea Atlantic extending coverage to late Q4 2027. In the managed fleet, OKEA added two wells for the Deep Sea Yantai to Q4 2027, Shell contracted the Deep Sea Mira for 150 days in Trinidad and Tobago, and the Beacon Pacific was added with a six-well, roughly 400-day Cerica Energy contract starting Q3 2027. All owned rigs are now fully booked until late 202

For the complete transcript of the earnings call, please refer to the full earnings call transcript .